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An Empirical Analysis of Changes in Credit Rating Properties: Timeliness and Stability
Mei Cheng, The University of Arizona
Monica Stefanescu, The University of Arizona
ABSTRACT. Recently, credit rating agencies have faced increased investor criticism and regulatory pressure for their ratings’ lack of timeliness. This study investigates: (1) whether rating agencies respond to such criticism and pressure by improving the timeliness of credit ratings; and (2) whether the agencies achieve better timeliness by increasing credit analysis quality or by acting more quickly on new information without regard for its potentially transitory nature (and thus, sacrificing rating stability). We find that, following increased regulatory pressure and criticism, rating agencies have improved the timeliness, stability, and accuracy of their ratings. Our findings suggest that maybe, in the past, rating agencies did not avail themselves of the best analysis methods/efforts possible. When their market power is threatened by the possibility of regulatory intervention and/or reputation concerns, the agencies respond with improved quality of their credit analysis.
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